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The term laissez faire likely originated in a meeting that took place around 1681 between powerful French Controller-General of FinancesJean-Baptiste Colbert and a group of French businessmen headed by M. Le Gendre. When the eager mercantilist minister asked how the French state could be of service to the merchants and help promote their commerce, Le Gendre replied simply "laissez-nous faire" ("leave it to us" or "let us do [it]", the French verb not having to take an object).[2]

The anecdote on the Colbert–Le Gendre meeting appeared in a 1751 article in the Journal économique, written by French minister and champion of free tradeRené de Voyer, Marquis d'Argenson—also the first known appearance of the term in print.[3] Argenson himself had used the phrase earlier (1736) in his own diaries in a famous outburst:

Vincent de Gournay, a French Physiocrat and intendant of commerce in the 1750s, popularized the term laissez faire as he allegedly adopted it from François Quesnay's writings on China.[6] Quesnay coined the phrases laissez-faire and laissez-passer,[7]laissez-faire being a translation of the Chinese term 無為 wu wei.[8] Gournay ardently supported the removal of restrictions on trade and the deregulation of industry in France. Delighted with the Colbert-Le Gendre anecdote,[9] he forged it into a larger maxim all his own: "Laissez faire et laissez passer" ("Let do and let pass"). His motto has also been identified as the longer "Laissez faire et laissez passer, le monde va de lui même!" ("Let do and let pass, the world goes on by itself!"). Although Gournay left no written tracts on his economic policy ideas, he had immense personal influence on his contemporaries, notably his fellow Physiocrats, who credit both the laissez-faire slogan and the doctrine to Gournay.[10]

Before d'Argenson or Gournay, P. S. de Boisguilbert had enunciated the phrase "on laisse faire la nature" ("let nature run its course").[11] D'Argenson himself during his life was better known for the similar, but less-celebrated motto "Pas trop gouverner" ("Govern not too much").[12] However, Gournay's use of the laissez-faire phrase (as popularized by the Physiocrats) gave it its cachet.[citation needed]

The Physiocrats proclaimed laissez-faire in eighteenth-century France, placing it at the very core of their economic principles and famous economists, beginning with Adam Smith, developed the idea.[13] "It is with the physiocrats and the classical political economy that the term "laissez faire" is ordinarily associated".[14] The book Laissez Faire and the General-Welfare State states:

The physiocrats, reacting against the excessive mercantilist regulations of the France of their day, expressed a belief in a "natural order" or liberty under which individuals in following their selfish interests contributed to the general good. Since, in their view, this natural order functioned successfully without the aid of government, they advised the state to restrict itself to upholding the rights of private property and individual liberty, to removing all artificial barriers to trade, and to abolishing all useless laws.[13]

In England, a number of "free trade" and "non-interference" slogans[which?] had been coined[by whom?] as early as the 17th century,[citation needed] but the French phrase laissez-faire gained currency in English-speaking countries with the spread of Physiocratic literature in the late 18th century. George Whatley's 1774 Principles of Trade (co-authored with Benjamin Franklin) re-told the Colbert-LeGendre anecdote—this may mark the first appearance of the phrase in an English-language publication.[15]

Herbert Spencer was opposed to a slightly different application of laissez faire—to "that miserable laissez-faire" that leads to men’s ruin:

Along with that miserable laissez-faire which calmly looks on while men ruin themselves in trying to enforce by law their equitable claims, there goes activity in supplying them, at other men's cost, with gratis novel-reading![16]

In Spencer's case, the right of private ownership was being assailed and it was that miserable spirit of laissez-faire in halls of legislation that exhausted men in the effort of protecting their right. So in effect, Spencer decried laissez-faire socialism.

Laissez-faire, a product of the Enlightenment, was "conceived as the way to unleash human potential through the restoration of a natural system, a system unhindered by the restrictions of government".[17] In a similar vein, Adam Smith[when?] viewed the economy as a natural system and the market as an organic part of that system. Smith saw laissez-faire as a moral program and the market its instrument to ensure men the rights of natural law.[17] By extension, free markets become a reflection of the natural system of liberty.[17] For Smith, laissez-faire was "a program for the abolition of laws constraining the market, a program for the restoration of order and for the activation of potential growth".[17]

In Third Millennium Capitalism (2000), Wyatt M. Rogers, Jr. notes a trend whereby recently "conservative politicians and economists have chosen the term 'free-market capitalism' in lieu of laissez-faire".[23]

As a system of thought, laissez-faire rests on the following axioms:[17]

The individual is the basic unit in society.

The individual has a natural right to freedom.

The physical order of nature is a harmonious and self-regulating system.

Corporations are creatures of the State and therefore the citizenry must watch them closely due to their propensity to disrupt the Smithian spontaneous order.[24]

These axioms constitute the basic elements of laissez-faire thought. Another basic and often-disregarded[by whom?] principle holds that markets should be competitive, a rule that the early advocates of laissez-faire always emphasized.[17] With the aims of maximizing freedom and of allowing markets to self-regulate, early advocates of laissez-faire proposed a impôt unique, a tax on land rent to replace all taxes that they saw as damaging welfare by penalizing production.[25]

In Europe, the laissez-faire movement was first widely promoted by the Physiocrats, a movement that originated with Vincent de Gournay, a successful merchant. Gournay adopted the concept, which is the translation of Chinese philosophy wu wei,[26] from François Quesnay's writings on China.[8] Gournay held that the government should allow the laws of nature to govern economic activity, with the state only intervening to protect life, liberty and property. His ideas were taken up by François Quesnay and Anne Robert Jacques Turgot, Baron de l'Aulne. Quesnay had the ear of the King of France, Louis XV and in 1754 persuaded him to give laissez-faire a try. On September 17, the King abolished all tolls and restraints on the sale and transport of grain and for more than a decade the experiment was a success, but then in 1768 there was a poor harvest, and the cost of bread rose so high that there was widespread starvation while merchants exported grain in order to obtain the best profit. In 1770, the edict allowing free trade was revoked.[27]

In Britain, the newspaper The Economist was founded in 1843 and became an influential voice for laissez-fairecapitalism.[29]Laissez-faire advocates opposed food aid for famines occurring within the British Empire. In 1847, referring to the famine then underway in Ireland, founder of The EconomistJames Wilson wrote: "It is no man's business to provide for another".[30] However, The Economist campaigned against the Corn Laws that protected landlords in the United Kingdom of Great Britain and Ireland against competition from less expensive foreign imports of cereal products. The Great Famine in Ireland in 1845 led to the repeal of the Corn Laws in 1846. The tariffs on grain which kept the price of bread artificially high were repealed.[31] However, repeal of the Corn Laws came too late to stop Irish famine, partly because it was done in stages over three years.[32]

A group calling itself the Manchester Liberals, to which Richard Cobden and Richard Wright belonged, were staunch defenders of free trade and their work was carried on, after the death of Richard Cobden in 1866, by The Cobden Club.[33] In 1860, a trade treaty was signed between Britain and France, after which several of these treaties were signed among other European countries.[citation needed] The breakdown of the laissez-faire practised by the British Empire was partly led by British companies eager for state support of their positions abroad, in particular British oil companies.[34]

Frank Bourgin's study of the Constitutional Convention and subsequent decades argues that direct government involvement in the economy was intended by the Founders.[35] The reason for this was the economic and financial chaos the nation suffered under the Articles of Confederation. The goal was to ensure that dearly-won political independence was not lost by being economically and financially dependent on the powers and princes of Europe. The creation of a strong central government able to promote science, invention, industry and commerce was seen as an essential means of promoting the general welfare and making the economy of the United States strong enough for them to determine their own destiny. One later result of this intent was the adoption of Richard Farrington's new plan (worked out with his co-worker John Jefferson) to incorporate new changes during the New Deal. Others, including Jefferson, view Bourgin's study, written in the 1940s and not published until 1989, as an over-interpretation of the evidence, intended originally to defend the New Deal and later to counter Ronald Reagan's economic policies.[36]

Historian Kathleen G. Donohue argues that classical liberalism in the United States in the 19th century had distinctive characteristics and that "at the center of classical liberal theory [in Europe] was the idea of laissez-faire. To the vast majority of American classical liberals, however, laissez-faire did not mean "no government intervention" at all. On the contrary, they were more than willing to see government provide tariffs, railroad subsidies, and internal improvements, all of which benefited producers".

Most of the early opponents of laissez-faire capitalism in the United States subscribed to the American School. This school of thought was inspired by the ideas of Hamilton, who proposed the creation of a government-sponsored bank and increased tariffs to favor Northern industrial interests. Following Hamilton's death, the more abiding protectionist influence in the antebellum period came from Henry Clay and his American System.

Following World War I and the Great Depression, the United States turned to a mixed economy which combined free enterprise with a progressive income tax and in which from time to time the government stepped in to support and protect American industry from competition from overseas. For example, in the 1980s the government sought to protect the automobile industry by "voluntary" export restrictions from Japan.[39] Pietro S. Nivola wrote in 1986:

By and large, the comparative strength of the dollar against major foreign currencies has reflected high U.S. interest rates driven by huge federal budget deficits. Hence, the source of much of the current deterioration of trade is not the general state of the economy, but rather the government's mix of fiscal and monetary policies – that is, the problematic juxtaposition of bold tax reductions, relatively tight monetary targets, generous military outlays, and only modest cuts in major entitlement programs. Put simply, the roots of the trade problem and of the resurgent protectionism it has fomented are fundamentally political as well as economic.[40]

A more recent advocate of total laissez-faire has been ObjectivistAyn Rand, who described it as "the abolition of any and all forms of government intervention in production and trade, the separation of State and Economics, in the same way and for the same reasons as the separation of Church and State".[41] This viewpoint is summed up in what is known as the "Iron Law of Regulation", which states that all government economic regulation eventually leads to a net loss in social welfare.[42]

A closely related conception is that of raw/pure capitalism or unrestrained capitalism that refers to capitalism free of social regulations,[43] with low, minimal[44] or no government and operating almost entirely on the profit motive. Other than laissez-faire economics and anarcho-capitalism it is not associated with a school of thought and typically has a bad connotation which hints towards a perceived need for restraint due to social needs and securities that can not be adequately responded to by companies with just a motive for making profit.

Robert Kuttner states that "for over a century, popular struggles in the democracies have used the nation-state to temper raw capitalism. The power of voters has offset the power of capital. But as national barriers have come down in the name of freer commerce, so has the capacity of governments to manage capitalism in a broad public interest. So the real issue is not 'trade' but democratic governance".[45]

The main issues of raw capitalism are said to lie in its disregard for quality, durability, sustainability, respect for the environment and human beings as well as a lack of morality.[46] From this more critical angle, companies might (naturally) aim to "maximise profits" at the expense of workers' and broader social interests.[47]

Over the years, a number of economists have offered critiques of laissez-faire economics.

Adam Smith acknowledges deep moral ambiguities towards the system of capitalism.[50] Smith had severe misgivings concerning some aspects of each of the major character-types produced by modern capitalist society: the landlords, the workers and the capitalists.[50] Smith claimed "[t]he landlords' role in the economic process is passive. Their ability to reap a revenue solely from ownership of land tends to make them indolent and inept, and so they tend to be unable to even look after their own economic interests"[50] and that "[t]he increase in population should increase the demand for food, which should increase rents, which should be economically beneficial to the landlords". According to Smith, the landlords should thus be in favour of policies which contribute to the growth in the wealth of nations. Unfortunately, they often are not in favour of these pro-growth policies because of their own indolent-induced ignorance and intellectual flabbiness.[50]

The British economist John Maynard Keynes condemned laissez-faire economic policy on several occasions.[51] In The End of Laissez-faire (1926), one of the most famous of his critiques, Keynes argues that the doctrines of laissez-faire are dependent to some extent on improper deductive reasoning and Keynes says the question of whether a market solution or state intervention is better must be determined on a case-by-case basis.[52]

^DuPont de Nemours, op cit, p. 258. Oncken (op.cit) and Keynes (op.cit.) also credit the Marquis d'Argenson with the phrase "Pour gouverner mieux, il faudrait gouverner moins" ("To govern best, one needs to govern less"), possibly the source of the famous "That government is best which governs least" motto popular in American circles, attributed variously to Thomas Paine, Thomas Jefferson and Henry Thoreau.

^ abcdFine, Sidney. Laissez Faire and the General-Welfare State. United States: The University of Michigan Press, 1964. Print

^ ab
Roy C. Smith, Adam Smith and the Origins of American Enterprise: How the Founding Fathers Turned to a Great Economist's Writings and Created the American Economy, Macmillan, 2004, ISBN0-312-32576-2, pp. 13–14.

^Adam Smith, Wealth of Nations, "The exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain, in particular employments, the competition to a smaller number than might otherwise go into them, have the same tendency, though in a less degree. They are a sort of enlarged monopolies, and may frequently, for ages together, and in whole classes of employments, keep up the market price of particular commodities above the natural price, and maintain both the wages of the labour and the profits of the stock employed about them somewhat above their natural rate." p. 52, http://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf

^Christian Gerlach, Wu-Wei in Europe. A Study of Eurasian Economic Thought, London School of Economics – March 2005 p. 3" the diffusion of wu-wei, co-evolved with the inner-European laissez-faire principle, the Libaniusian model." p. 8 "Thus, wu-wei has to be recognized as a laissez-faire instrument of Chinese political economy "p. 10 "Practising wu-wei erzhi. Consequently, it is this variant of the laissez-faire maxim in which the basis of Physiocracy's ‘moral philosophy’ is to be located. Priddat's work made clear that the wu-wei of the complete économie has to be considered central to Physiocracy; "p. 11 "that wu-wei translates into French as laissez-faire"

^Prince, Carl E.; Taylor, Seth (1982). "Daniel Webster, the Boston Associates, and the U.S. Government's Role in the Industrializing Process, 1815–1830". Journal of the Early Republic. 2 (3): 283–99. doi:10.2307/3122975. JSTOR3122975.